However, the pace of that improvement appeared to slow in February. Recent data suggest that continued tight credit access for buyers has the market more dependent on cash and investor buyers than in years past. And on the supply side, growth is challenging the ability of the housing pipeline – workers, lots and building materials – to meet rising demand. Given that housing has been a bright spot amidst an otherwise stagnant economy, this slowing of improvement could have important macroeconomic impacts.

Consistent with the NAHB survey, the Census Bureau reported new home sales in February were down 4.6% from the preceding month. While the month-over-month drop was notable, it remains the case that the pace of new home sales remains significantly higher (12.3%) than this time a year ago. The February sales pace of 411,000 is in line with expectations for the year. NAHB expects new home sales to average 449,000 for 2013 as more consumers regain the confidence to purchase a home. At that rate, the home building industry remains at less than two-thirds of what would be considered a normal market.

The inventory of newly built home inventory remains historically low. The current months’-supply measure of new homes stands at 4.4. Prices of newly built homes are expected to increase in the coming year for multiple reasons. One is low supply, but rising building costs for lots, materials and labor will also boost new home sales prices.

As a result, existing home inventory is on the rise. The total housing inventory at the end of February increased 9.6% from the previous month to 1.94 million existing homes for sale. Part of this rise was seasonal, but rising prices are also inducing more home owners to place their homes on the market. While inventory is rising, demand is rising faster. At the current sales rate, the February 2013 inventory represents a 4.7-month supply compared to a 6.4-month supply of homes a year ago.

Yet concerns remain about the mix of home buyers. NAR estimates that in February, all-cash transactions rose to 32% of all existing home sales. Investor buyers constituted 22% of sales. The number of first-time buyers remain historically low, at 30% of buyers in February, down from 32% from a year ago.

Other notes of caution come from the builder side of the supply equation. Due to the historic nature of the downturn in residential construction, it is not surprising that the infrastructure of building – buildable lots, workers with the right skills and a pipeline of building materials – will at times and in certain locations be insufficient to meet the demands of rising home construction.

More than half of builders reported that labor shortages over the past six months have caused them to pay higher wages or subcontractor bids, and to raise home prices. Other effects include delays in completing projects on time, being forced to turn down some projects and lost or cancelled sales.

Additionally, building materials prices continue to rise. While overall producer prices have been relatively stable, the prices for certain building materials have risen rapidly as the housing recovery has gained momentum since the beginning of 2012. Overall producer prices are up less than 3% while softwood lumber, OSB and gypsum prices are 30%, 80% and 26% higher than at the start of 2012. According to data associated with the Consumer Price Index, gasoline prices were up 3.3% in February year over year.

Yet the long-term prospects of home building demand remain positive, with builders ramping up production despite the occasional monthly dips. Housing starts for February came in at a healthy pace for both single- and multifamily units according to Census data. Single-family housing starts in February ran at a 618,000 annual pace while multifamily starts came in at 299,000. This represents a continuation of the solid growth trajectory in single-family starts that began in earnest in late 2011 and carried through 2012. Issuance of new building permits is on track to sustain the current levels of production and NAHB expects that going forward, the pace of single-family production will accelerate, approaching 1 million starts by the end of 2014.

Finally, NAHB recently published its home buyer preference survey: What Home Buyers Really Want. Among the finding are data on desired home size. Among all home buyers, the median home size desired is 2,226 square feet. Age plays an important role, with the amount of space desired dropping steadily as the age of the buyer increases. Among those younger than 35, the size desired is 2,494 square feet, compared to 2,065 square feet among those 65 or older.

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I am very glad the picture is improving, but I remain unconvinced that what comes back to us will be the same beast that it was before the crash. I am hearing lately that rentals are becoming more expensive than homes. I also hear that people are emphasizing compact homes, and that proximity to cities is even more important than it used to be. I’m not sure what all this will mean to the future of home building, but I am interested to see what comes next.